[Federal Register Volume 59, Number 13 (Thursday, January 20, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-1338]
[[Page Unknown]]
[Federal Register: January 20, 1994]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-33466; File No. SR-DTC-93-07]
Self-Regulatory Organizations; the Depository Trust Company;
Order Approving a Proposed Rule Change Relating to an Enhanced
Institutional Delivery System
January 12, 1994.
On July 7, 1993, The Depository Trust Company (``DTC'') filed with
the Securities and Exchange Commission (``Commission'') a proposed rule
change (File No. SR-DTC-93-07) under Section 19(b)(1) of the Securities
Exchange Act of 1934 (``Act'')\1\ to enhance DTC's Institutional
Delivery (``ID'') system. Notice of the proposal was published in the
Federal Register on October 13, 1993.\2\ DTC received one comment
letter.\3\ For the reasons discussed below, the Commission is approving
the proposed rule change.
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\1\15 U.S.C. 78(b)(1) (1988).
\2\Securities Exchange Act Release No. 33010 (October 4, 1993),
58 FR 53007.
\3\Letter from Marshall N. Carter, Co-Chairman, and Ronald W.
Readmond, Co-Chairman, U.S. Working Committee of the Group of Thirty
Clearance and Settlement Project, to William Jaenike, President and
Chief Operating Officer, DTC (December 15, 1993). In its letter, the
U.S. Working Committee expresses its support of DTC's proposal and
asks DTC to survey its participants to determine if there is support
to extend the use of the ID system for depository ineligible issues.
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I. Description
The proposed rule change will enhance the ID system by including
interactive options and other new features in order to improve post-
trade data flow and to reduce costs to participants and other ID system
users. All new features are optional. The principal new features of the
enhanced ID system are described below with the planned implementation
period for each feature indicated in parenthesis. This order approves
the overall concept of the enhanced ID system. DTC will submit a
proposed rule change under section 19(b)(2) of the Act setting forth
the finalized rules and procedures for each principal new feature. Each
such proposed rule change will be submitted for Commission approval
prior to implementation of the subject principal new feature.
1. Standing Instructions Database (early 1994). The Standing
Instructions Database (``SID'') will be a repository for customer
account and settlement information furnished by institutions, agents,
and broker-dealers. The information will include items such as
interested parties, the agent for the customer, and the agent's
internal account number for the customer. When entering trade data into
the ID system, a broker-dealer can simply refer to the account
designations in the SID, and the ID system automatically will add the
necessary associated detail, such as customer name, agent, and
interested parties to the confirmation. The SID will eliminate the need
for the broker-dealer to maintain all such information in its internal
records and the need to provide all such information each time that it
enters trade data into the ID system.
2. Electronic Mail Features (early 1994). These features will
enable ID system users to send and receive Notification of Order
Execution (``NOE''), Institution Instructions, and Institution Request
for Cancellation/Correction. An NOE can be sent by a broker-dealer to
communicate the details of an order execution to an institution. If the
institution accepts the NOE, the institution can send the broker-dealer
Institution Instructions containing information, such as allocations of
block trades, which is needed by the broker-dealer to enter trade data
into the ID system for preparation of confirmations. The institution
can send the broker-dealer an Institution Request for Cancellation/
Correction when the institution disagrees with a confirmation that the
institution has received through the ID system. Currently, broker-
dealers and institutions make telephone calls or send facsimile
transmissions to communicate the information which will be sent through
these electronic mail features.
3. Interactive ID (early 1994). In addition to using the ID system
in the current batch mode, ID system users will be able to use the
system interactively with the capability of accomplishing all ID system
processing within as short a time as a single business day.
4. Matching (mid 1994). As an alternative to the current
confirmation and affirmation processing in the ID system, DTC will
offer a matching option. The enhanced ID system will match trade data
received from the broker-dealer with Institution Instructions received
from the institution. The results of the matching will be reported
through the distribution of various output reports to the broker-
dealer, the agent, and the institution.
5. Authorization/Exception Processing and T+5 Reporting (mid 1994).
Because most unaffirmed trades of DTC-eligible securities eventually
result in book-entry deliveries effected by deliver orders, the
enhanced ID system will enable the delivering parties to ID system
trades to authorize automated settlement of unaffirmed trades. In
addition, delivering parties will be allowed to authorize settlements
of trades on the settlement dates and later. This feature will enable
delivering parties to take advantage of the efficiencies of
preauthorized automated settlement.
II. Discussion
Section 17A(a)(1)(C) of the Act sets forth Congress' findings that
new data processing and communications techniques create the
opportunity for more efficient, effective, and safe procedures for
clearance and settlement.\4\ In Section 17A(a)(2), Congress directed
the Commission to facilitate the establishment of a national system for
the prompt and accurate clearance and settlement of securities
transactions.\5\ Furthermore, Sections 17A(b)(3) (A) and (F) require
that a clearing agency be organized and its rules designed to
facilitate the prompt and accurate clearance and settlement of
securities transactions.\6\ The Commission believes the proposed rule
change facilitates a more efficient and effective system for the prompt
and accurate clearance and settlement of institutional trades.
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\4\15 U.S.C. 78q-1(a)(1)(C).
\5\15 U.S.C. 78q-1(a)(2).
\6\15 U.S.C. 78q-1(b)(3) (A) and (F).
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Furthermore, the Commission in its order adopting Rule 15c6-1,
which establishes three business days as the standard settlement
timeframe for broker-dealer trades effective June 1, 1995, stated that
implementation of an interactive ID system is a critical building block
that must be in place before the settlement cycle can be shortened.\7\
The Commission believes that approving the overall interactive ID
concept is an important step that will help to provide the framework
for a shortened settlement cycle and all the benefits that are derived
therefrom.
III. Conclusion
On the basis of the foregoing, the Commission finds that the
proposed rule change is consistent with the requirements of the Act and
in particular with the requirements of Section 17A of the Act, and the
rules and regulations thereunder.
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\7\For a detailed description and discussion of Rule 15c6-1,
refer to Securities and Exchange Commission Release Nos. 33-7022,
34-33023, and IC-19768 (October 13, 1993), 58 FR 52891 [File No. S7-
5-93] (order adopting Rule 15c6-1).
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It is therefore ordered, pursuant to section 19(b)(2) of the
Act,\8\ that the proposed rule change (File No. SR-DTC-93-07) be, and
hereby is, approved.
\8\15 U.S.C. 78s(b)(2).
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For the Commission by the Division of Market Regulation,
pursuant to delegated authority.\9\
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\9\17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-1338 Filed 1-19-94; 8:45 am]
BILLING CODE 8010-01-M